The international consortium, led by Motorola, filed for protection from its creditors in Delaware's bankruptcy court under Chapter 11 of the federal bankruptcy code.
Iridium, the first of four satellite phone networks to offer a service, was launched last November. But users complained about complex calling plans with rates of up to $9 a minute. The company's customer base - at around 15,000 - fell well short of the subscriber projections used to secure many of its loans.
Iridium LLC sought Chapter 11 protection after its bondholders and its biggest investor, Motorola, could not agree on a plan for the cash-strapped company to repay its debts. Iridium had already defaulted on $1.55bn in bank loans, after failing to lure enough users to its 66-satellite global phone network. The filing ends weeks of negotiations among Iridium's bondholders, bank lenders and Motorola.
The company filed in Delaware just one and a half hours after an investor group, which owns about 25 per cent of Iridium's $1.45bn of notes, sought an involuntary bankruptcy filing in New York, setting up another battle to determine the fate of the company. The bondholders are betting that the courts in New York would give them a better chance of getting their money back. Iridium LLC bonds plunged up to 30 per cent .
While the Delaware bankruptcy filing gives the company breathing room, it may not fix a key problem, a dearth of customers, which remains despite moves in June when the company introduced a simplified rate structure, slashing charges by as much as 65 per cent, and unveiled sleeker phones made by Motorola and Kyocera, costing about $1,500.
In a statement yesterday, Washington-based Iridium said its banks, bondholders and strategic partners have voiced support for the decision to restructure its finances under court protection. Motorola, operator of Iridium's 66-satellite system, expressed support for the business. "We are optimistic that a restructuring plan can be accomplished within 30 days," Motorola said in Iridium's statement.